This study examines the factors driving digital adoption among ultra-micro, micro, and small enterprises (UMSEs) in Indonesia, using data from a survey of 10,142 UMSEs across 34 provinces. A comprehensive Digital Adoption Index was developed to assess adoption levels and their regional variations, focusing on key business processes, including e-procurement, POS systems, e-marketing, e-commerce, and digital payments. Results indicate that digital adoption is significantly influenced by owner demographics, firm characteristics, business environment, infrastructure quality, and cultural factors, contributing to disparities in adoption across regions. The findings suggest that digital adoption positively impacts UMSEs' business performance, business innovation, financial literacy and financial inclusion, highlighting the potential for digital tools to enhance financial knowledge and access within this sector. This research provides actionable insights for policy development aimed at supporting digital transformation among UMSEs, particularly in areas with low adoption levels.

Keywords: Digital Adoption, Ultra-Micro, Micro and Small Enterprises, Business Performance, Business Innovation, Financial Literacy, Financial Inclusion.